Characteristics of Floating-rate notes
State the characteristics of the Floating-rate notes (FRNs) bond market instrument.
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Floating-rate notes (FRNs) are medium-term bonds along with their coupon payments which are indexed to some reference rate. General reference rates are either three-month or six-month U.S. dollar LIBOR. Coupon payments on FRNs are typically quarterly or semi-annual, and in accord with the reference rate. 18. State the characteristics of the Convertible bond market instrument. Convertible bond issue permits the investor to exchange the bond for the pre-determined number of equity shares of issuer. Floor value of the convertible bond is its straight fixed-rate bond value. Convertibles normally sell at premium above the larger of their straight debt value and their conversion value. In addition, investors are usually willing in order to accept the lower coupon rate of interest than the comparable straight fixed coupon bond rate as they find call feature very attractive. Bonds with equity warrants are viewed as the straight fixed-rate bond with the addition of the call option (or warrant) feature. Warrant entitles the bondholder for purchasing the particular number of the equity shares in a issuer at the pre-stated price over the pre-determined time period.
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